State Tax Law Encourages Donations of Conservation Easements

A conservation easement (CE) is a voluntary legal agreement between a landowner and a qualified nonprofit conservation organization or government entity that allows a landowner to limit the type or amount of development on their property while retaining private ownership of the land. It may apply to all or only a portion of the land owned by an individual. The easement is signed by the landowner, who is the easement donor, and by the qualified holder. Except for the purpose of monitoring the easement, the holder of the CE has no right to enter the property.  The holder accepts the CE with the understanding that it must enforce the terms of the easement in perpetuity. It is the value of the development rights the landowner gives up under a CE that may be claimed as a charitable contribution. The landowner still owns the land and enjoys all of the other rights and benefits of ownership.

In December 2006 Governor Granholm signed into law Public Act 446 of 2006, eliminating the “pop-up” tax on the transfer of land enrolled in a permanent CE. Land (not buildings on the land) enrolled in a CE will not have the taxable value of the property “popped up” to the State Equalized Value upon transfer of ownership. This means a potential direct tax savings of hundreds or thousands of dollars per year for new owners of the land. In cases where land has been held in a family for years, this may mean the difference between heirs being able to hold on to the land or having to sell it.

 


Michigan Public Act 446 of 2006

A Powerful New Incentive for Private Land Conservation

(From the Heart of the Lakes Center for Land Conservation Policy)

What Does Public Act 446 Do? (Click here for a printable pdf version)

Under current Michigan law, the taxable value of a parcel of property may not increase from one year to the next by more than 5% or the increase in the consumer price index, whichever is lower, until there is a transfer of ownership. When the property is sold or transferred, the assessment is “uncapped” and the parcel is taxed upon its state equalized value (SEV: 50% of its true cash value). This reassessment upon transfer creates a “pop-up” property tax. P.A. 446, introduced as Senate Bill 1004, eliminates the “pop-up” property tax on the transfer of lands enrolled in a voluntary conservation agreement (also known as “conservation easement”). 1

How Does This Benefit Conservation?

Until the signing of Senate Bill 1004 on December 7, 2006, property taxes on conservation lands, like developed lands, jumped dramatically upon their sale or transfer. Property taxes on conservation lands rose significantly even though their development is permanently limited. This provided a disincentive for landowners to enter into conservation agreements. To afford the higher taxes, new landowners needed the option of developing the land. The elimination of the pop-up tax on conservation lands means that both current and future landowners have a strong incentive to keep the affected lands intact with habitat, environmental and scenic benefits. This law gives protected conservation property the same tax treatment as protected farmland.

How Does This Benefit Private Landowners?

The Act prevents the taxable value of conservation property from “popping-up” to the state equalized value when it is transferred. This means a potential direct tax savings of hundreds or thousands of dollars per year for new owners of the land.

What’s an Example of How the New Law Works?

An 80-acre non-farm property with a current taxable value of $43,000 and a state equalized value of $252,000 would have been subject to $4,395 in annual property tax payments after transfer. Under the new law, if the 80 acres are all enrolled in a conservation agreement, annual property taxes will remain at their current level after transfer — $750 per year. This means an annual savings of $3,645. Over a 50-year span, the new landowner will realize an estimated $149,131 in value from the change.

How Do I Find Out More?

Contact your local land conservancy, accountant and tax advisor to learn how the new law could benefit you.

1 Residences and buildings on the lands are still subject to reassessment to the current SEV.